Can Intel Corp. Turn PC Sales Around With More Innovation?

By Markets Fool.com

Image source: Intel.

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Seeking Alpha contributor Bruce Burnworth recently penned an interesting column in which he predicts that chipmaker Intel is set to have a bum year in 2016 (even predicting that the stock will return to around $25 per share) but is set to "thrive" in 2018 if it can "market compelling [technology] to the masses."

In particular, he argues that today's personal computers simply need to be faster and packed with more interesting features (such as wireless docking, charging, and more) before they'll be able to entice consumers to upgrade.

"It used to be that the PC improvements from year to year were so great that buying a new PC was a necessary event every few years," Burnworth writes. "Not so now."

In this column, I'm going to make a different argument. I contend that PC "innovation" is quite alive and well and that PCs have gotten substantially better year after year. The problem is that, in today's market environment, it simply doesn't matter. Here's why.

Today's PCs are nothing short of awesome
Whether we are talking about desktop PCs or laptops, it's hard to argue that PCs haven't gotten a lot better each year. With the introduction of its Haswell family of processors in 2013, Intel delivered a substantial boost in notebook battery life. Apple , one of the early adopters of Haswell, made a big deal of the fact that its Haswell-equipped MacBook Air systems could deliver "all-day battery life."

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In late 2014/early 2015, we saw Intel introduce its first 14-nanometer processors known as Broadwell. For the first time, it became possible to build a fan-less notebook/detachable that wasn't a serious compromise. The early 2015 12-inch MacBook and the various detachable Windows-based PCs from a number of vendors illustrate what Broadwell enabled.

And, with the Skylake architecture that Intel brought to market late last year, we saw another big improvement in capabilities. According to Ars Technica, Intel dialed up graphics performance in its low-power Skylake chips substantially. This came in addition to major improvements in CPU performance as well as a whole host of platform features.

Intel has done a very, very good job of developing technologies that have made the personal computer fundamentally a whole lot better over the years. Innovation isn't a problem here.

What is the problem, then?
There are several issues for Intel here. First off, most consumers only have a finite amount of money to spend on electronics. For what most people do with them, several-year-old PCs still do the job just fine. And with the meteoric rise in the capabilities of smartphones, many consumers are opting to shift many of their workloads to smartphones.

For example, why Skype somebody using the crappy webcam built into your PC when the smartphone you just bought has a very nice front-facing camera that's easy to carry around? Why return to your desk or open up a laptop to answer an email when you can do that with your phone? Why use a PC to chat with people via a messaging application when you can do so with your phone?

Today's smartphones have also gotten quite good at tasks such as web surfing, video playback, and casual games.

Most consumers simply don't need PCs anymore for many of their daily tasks, and the productivity tasks that do require PCs (and aren't doable at, say, a workplace) generally aren't the kinds of applications to require one to continually buy new PCs.

The "Super-Smart Phone"
Burnworth correctly recognizes this trend, noting that PCs and smartphones will converge into a "Super-Smartphone" in the 2018 time frame. Given the trajectory of improvement in the performance of mobile processors, I would say that Burnworth's read of the situation is on point.

Unfortunately, I don't think that in a world where the majority of computing is done on a "Super-Smart Phone" that Intel comes out the winner. Intel has virtually no presence in the market for smartphone applications processors, nor has it shown that it is on track to build such a presence.

Intel's competitors generally build superior chips for smartphone form factors, and I don't see this changing anytime soon. If anything, the gap is only widening.

Now, one could argue that Intel is best positioned to capitalize on such a "Super-Smart Phone" by virtue of the fact that only its chips can run full Microsoft Windows. I think this thinking is flawed. For many, smartphones powered by Android or iOS have become their primary computing devices.

The app ecosystems on both platforms (particularly iOS) are rich and vibrant, and developer attention will only continue to shift away from Microsoft Windows/the PC toward these mobile platforms. The best mobile-focused apps are built on iOS and Android, and in a world where smartphones become our primary computing devices, those mobile-focused apps will be far more important than legacy Windows applications.

Intel has lost the client computing market
Intel will continue to rake in revenue from chips that go into traditional personal computers for years to come. However, I suspect that such sales will continue to dwindle until at some point those units bottom and, from there, basically stay flat. A return to sustained growth seems unreasonable to expect, and even Intel's own CEO has said that the company's goal is to keep PC sales flat over the long term.

Without a meaningful presence in the smartphone market, Intel is virtually shut out of the future of the client computing market, which will be dominated by increasingly powerful and capable smartphones. That, unsurprisingly, is why the company has gone all-in on its data center efforts.

The article Can Intel Corp. Turn PC Sales Around With More Innovation? originally appeared on Fool.com.

Ashraf Eassa owns shares of Intel. The Motley Fool owns shares of and recommends Apple. The Motley Fool recommends Intel. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.